Socar, Inc., a provider of car-sharing services, and VCNC, Inc., a software developer (together the “Defendants”), jointly developed a mobile application called “TADA” and offered the “TADA Service,” which is a combination of a car rental service and driver referral service. The TADA Service was met with opposition from the taxi industry and attracted much media attention from TADA Service users who argued that the new service model, industry, innovation, and business model needed to be protected.
In spite of strong support for the service, the Prosecutors’ Office indicted the Defendants on charges of violation of the Passenger Transport Service Act, on the grounds that the service was substantively identical to the taxi transportation business, which is heavily regulated.
At trial, the main issue was whether the TADA Service fell within the scope of the taxi transportation business, and if so, whether the Defendants would be deemed as operating a taxi transportation business without obtaining required licenses.
Kim & Chang argued that the TADA Service was launched as a short-term rental-car service with driver referral, a service legally allowed under the Passenger Transport Service Act and the Enforcement Decree of the same act, which has as an exception permitting the referral of a driver to a person who rents a large van with 11 to 15 seats.
We successfully obtained a decision (from the district court and higher courts) that the Defendants were not guilty. The court was persuaded by our comprehensive defense arguments, which included the following:
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(1) |
The TADA Service is a combination of a passenger car rental service and a driver referral service. Thus, the TADA Service is distinct from commercial passenger transportation services provided by taxis, which are regulated by the Passenger Transport Service Act. |
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(2) |
Drivers (who transport passengers per the TADA Service) are not employees of the Defendants, but are independent contractors. |
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(3) |
In light of the language, history, structure, and purpose of the Passenger Transport Service Act, a service that combines a car rental service and a driver referral service cannot be deemed “commercial passenger transportation” (e.g., taxi) by virtue of the fact that they are similar in function or utility. |
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(4) |
There was no intent to violate any laws or awareness of any such violation on the part of the Defendants, as they launched the TADA Service in the belief that they were compliant with all applicable laws. |
We also presented a thorough analysis of the Passenger Transport Service Act and a related Supreme Court precedent to assist the court with the complicated facts and issues of the case and successfully persuaded the Court to render a decision in favor of the Defendants.
This case attracted significant media attention as the future of an innovative business model in the car-sharing service industry was at stake. In addition, this case will serve as an important precedent for many start-ups seeking to launch innovative businesses in good faith under circumstances where there is a lack of clarity regarding regulatory requirements.
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